Forbearance Coming Into Focus

Part of the CARES act provides for a 90 day forbearance on mortgage payments during the pandemic to help those that may have lost their jobs and need the extra time to make their payments.  For some weeks, I’ve been curious to know if the 3 million loans currently in forbearance would be a detriment to the borrower.

If you are in forbearance now, for whatever reason, know that it IS being notated on your credit report.  It doesn’t affect your credit score, but it is visible to future potential lenders, lenders looking at your credit report will know that you missed your mortgage payments.  Forbearance is supposed to be a help to you.  There is no qualification to go into forbearance, and there are different issues you may be facing, all good reasons no doubt based on your personal situation right now. 

If you are thinking about going in to forbearance and haven’t done so yet, but think you will need to in order to get through the lockdown, my personal recommendation is to consider taking equity out of your house, if you can, as an insurance policy before you consider forbearance.  Of course, this option is only available if you are still making money and have a job.  Lenders are not making loans for folks that are unemployed and can’t guarantee continuation of employment after restrictions of the coronavirus have lifted.

If you take out a loan, and go into forbearance right away, the lender will be penalized seven points by Freddie and Fannie.  To be sure, that “sting” hurts you as well as your lender, due to the fact that you took out the loan and immediately needed the forbearance protection.  That will make it more difficult to get a loan in the future.  However, if you take out a loan and wait to go into forbearance, say a number of months, there is no penalty to the lender and it appears that you tried to avoid forbearance after getting the loan  Look, it’s always advisable to talk with your broker before making a decision about forbearance.

Please continue to be safe.